Over the holidays, a debate broke out in the blogosphere about the so-called job guarantee idea that the MMT folks have bandied about. I call this controversial idea "Unemployment Insurance for the 21st Century", something I first addressed in 2009, based on a post by Randall Wray.

My view: a job guarantee will never happen in the US unless we have a deep Depression like the one that began in 1929. Politically, this idea is a non-starter on this side of the Atlantic… unless things get really bad and all other options have failed. I say this because I am a pragmatist and that’s the political reality I am seeing. To my mind, the politics must always be front and center mentally. Now, if you wanted to look for a place where this job guarantee idea would first be implemented, try Spain, where youth unemployment is almost 50%.

Clearly, the US has a great need for infrastructure repair — roads, bridges, tunnels, public transport, you name it. Just the day before yesterday, I was walking down the street with my wife and son when we noticed some serious (but unnecessary and annoying) street work that the local county had done. I went ballistic, complaining that, on the one hand, the local elementary school right across the street had been shut down because the building was ‘not up to code’, yet on the other hand, the county was doing these ridiculous and unnecessary street and sidewalk ‘improvements’. It immediately hit me that one could claim that these improvements were keeping people employed and aiding the economy. But, my viscerally negative reaction tells you that such a claim would be considered false by many taxpayers. It’s through these eyes that I view the debate on the job guarantee.

I’m not going to get into what is ‘real’ MMT and what isn’t. Instead I will just repeat verbatim what I wrote in the comments to my post "More thoughts on out of control deficit spending" last March in response to Jeff Reisberg (You should read the post too):

"I was having this conversation with Scott Fullwiler and Randall Wray and, yes, they both indicated they were concerned about cronyism and the Predator State. So you are right that this is something that concerns them. Perhaps I shouldn’t say I am more negative than they are on that level. Perhaps I should say that they are more convinced that full employment is the primary goal of government.

"Where I think Scott, Randy and I agreed is that the cronyism and resource misallocation is less important than the output gap from underemployment in a massive recession like the one we have had. If you had to err on any side, it would be on the side of increasing demand in order to close the output gap, even if that meant some level of government waste and/or cronyism and resource misallocation. The alternative is to allow labor to sit idle and thus miss out on tens of billions in potential production.

"One more thing about the cronyism that has to do with the present political debates. I think this goes to my point more and is something I have discussed quite often with Marshall Auerback. The Obama Administration is seen as having used ‘Keynesian’ stimulus as a primary tool in dealing with the crisis. In my opinion, it is relatively certain the economy would be in worse shape if they hadn’t done so. The same goes for the liquidity provided in QE1.

"The problem is the WAY it was done and why this invariably leads to a certain disgust in the electorate. In both cases, in terms of the Obama Administration and the Fed, you saw the Predator State at work, meaning policies favoured certain groups over others. Now I think the fiscal stimulus was too small and not targeted enough. But that’s neither here nor there when the bailouts are the major ‘stimulative’ activity that the electorate sees. That’s where the problem is. And while Tim Geithner says these ‘deeply unpopular, deeply hard to understand’ policies were necessary, doing things this way ensures that stimulus is discredited as a policy tool. I am thinking principally of the freebies for the too big to fail banks.

"My point here about cronyism and resource misallocation has much to do with that. The point being that if you are destined to get cronyism in a deep downturn, you are also likely to get stimulus revulsion and that necessarily undermines the ability to provide any stimulus, whether it helps or not. What I am saying is that the move into deficit hawk territory and the (often false) arguments used to support this move are enabled greatly by cronyism. The cronyism makes these arguments persuasive and fatally undermines any attempts to use government as a tool to diminish the impact of underemployment.

"So, while MMT’ers are hugely doubtful of the private sector’s ability to generate full employment alone, they will have to make do with the private sector’s lead while the government is in the thrall of corporatism – if only for political reasons."

I am never categorically against anything — including the job guarantee. In fact I like the ‘automatic’ aspect of it to reduce cronyism. Nonetheless, there are a lot of questions that the job guarantee creates which can’t be answered, at least politically. That’s why the JG won’t happen unless the economy is in a serious Depression and other options have failed.

Edward Harrison is the founder of Credit Writedowns and a former career diplomat, investment banker and technology executive with over twenty years of business experience. He is also a regular economic and financial commentator on BBC World News, CNBC Television, Business News Network, CBC, Fox Television and RT Television. He speaks six languages and reads another five, skills he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College. Edward also writes a premium financial newsletter. Sign up here for a free trial.

I think Dwight R.Lee has a great “response”. http://www.econlib.org/library/Columns/y2012/Leefederalspending.html
The private sector is the only sector that can make the productive allocation of resources. The government is unwilling and unable to do it. In addition to the many “costs” of taxation on the economy the cronyism of the government allocation system is an insurmountable obstacle, not just something to be lamented. The private sector is the sector can lead us to “full” employment.

There are two Greek words: AERGOS and ANERGOS. They are comprised from ERGO (work) and the neagative A. Anergos is the person who does not have work. Aergos is the person who does not create anything. Everyone has experienced plenty of the latter in our exchanges with public servants who spend more time complaining about their benefits than servicing customers. You get better service and a smile when you walk into a Chipotle ( and they get paid much less). This is a result of job security and cronyism. It is far superior to pay many of them to stay home instead.

Edward, while I agree with your conclusion (We will never see a JG program), I do have one question regarding cronyism.
If we were to “Get Money Out” of politics, do you think this cronyism, for the most part, dissapears?I talk about getting money out here: http://jerrykhachoyan.com/get-money-out/ (also check out my response to Carney in the comments)

I don’t think we’ll ever get money out of politics. Realistically, the US economic system would need to collapse for there to be a reboot of that magnitude, especially given the current Roberts Supreme Court, which will continue the assault on the “specialness” of individual human personhood at the expense of corporatism. So the JG would be part and parcel of a wholesale reboot. Until the system collapses, it won’t happen.

Thanks for the response.
I dont know, call me Naive, Optimistic, w/e, but I think it CAN be done. Why do I believe this? Because America has shown a great history of progression. There is always progress in our society that turn it to the beter.
Just think about it, how many previously unthinkable things has this nation done? A LOT (be it freeing slaves, giving equal rights, banning and then legalizing alcohol,etc).
And I agree, this court will have to go or there is going to have to be some type of revolt before we can actually get money out, but like I said, I think it can be done. It will just take time (next 10 years?)

The JG is to MMTers, appears to me, what the Gold Standard is to certain Austrians.

There is a massive difference between agreeing about the veracity of nominal national accounts and extrapolating this to JGs.
However I do not disagree with JGs and believe they should/could be used on certain sectors like out of work construction workers repairing schools and other things that local governments seem to drop off their to-do list.

The issues are exactly as you mentioned: allocation (why schools) and cronyism (why construction)

In short to increase ‘net financial assets’ – tax holidays are much cleaner – simple ‘across the board’ reductions. May even encourage repatriation of profits vs. tax havens.
This does not help the worker sitting at home worried about his/her bills.

Great post, I agree with you completely. I actually made a similar comment at Bill Mitchell’s and Randy Wray’s sites. I’m going to repost it here because I think I said a few important things you left out.

“I haven’t posted on your site before but I’ve been a long
time reader and admirer as an MMT advocate.
That said, I strongly believe the way you and other MMT theorists have
framed the JG is biased and detrimental to the wider acceptance of MMT. I agree with you that for MMT to be complete it must tap a buffer
for price stability and public purpose strongly favors a modality that should
PROMOTE job creation, perhaps to the point where almost everyone that wants a
job can get one. But insisting on a job
GUARANTEE requiring new bureaucracies and government restructuring is not the
only way to exploit the employment buffer and may not be the best way.

There are many other ways that government can spend its fiat
money and use the coercive power of taxation to encourage job growth when and
as needed without the need for the restructuring you and the other core MMT
theorists have proposed. I think the
chronic need for infrastructure rebuilding (where we have $3 trillion in needed
work) is enough but we can always find other avenues such as green energy that
serve multiple public purposes at once.
If we need roads and bridges and solar farms it would not be hard for government
to hire private contractors via competitive bidding and perhaps stipulate only
the hiring of American workers and other incentives for using goods made in
America.

I simply see too much naivete on the part of too many MMT
theorists in how to feasibly implement a JG in the real world. It is doubtful that any major economy will
implement a permanent JG (though used temporarily for the most part during
downturns) de novo. Rather, MMT ideas
will probably come in stages on the back of, or with the support of,
(neo/post/etc.) Keynesian thinkers in more rigorously modeled stimulus programs
along MMT lines. If they work as MMTers
predict, the politicians and government will be more prone to implement MMT
modeled stimulus in the future and these programs, MMT, and government will all
evolve together. If done right, this
evolution may asymptote to a JG program very similar to what the core MMT
theorists have proposed. But I doubt
it. My guess that it would evolve to
something else and it’s possible that this “something else” may be
better than what the MMT theorists currently envision.

I think the JG is rightly causing a schism in the MMT
community. You and other MMT theorists
could stop it by redefining MMT as requiring a buffer stock optimization
process to promote price stability and low unemployment (some level of
unemployment may be healthy simply on the basis of human nature). Then, your JG or ELR ideas could be included
as competing theories under the MMT
buffer stock optimization requirement but NOT as the be all and end all of MMT.”

What I hardly ever hear anyone discuss is that the U.S. is already doing Keynesian stimulus to the tune of 40% over its tax intake. It’s not like we’re balancing budgets right now! Fundamentally a “job guarantee” from a country in that situation seems fanciful at best.

I agree that the country’s infrastructure is in need of repair. And we are spending 140% of tax intake, so there should be plenty of room to fit infrastructure into that budget, right? It’s just a matter of priorities…if we cut our defense spending, reduced Medicare and Medicaid, etc., we would have PLENTY of money for infrastructure! People envy the infrastructure of China and then don’t take into account that China offers virtually no entitlements, welfare, unemployment, etc.

It’s a matter of choices. The choice that MMTers and NGDPers want is taxation-by-currency-depreciation. Why? Because it’s politically viable and removes any barriers to Leviathan government.

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